Member Sign In

You are being directed to ZacksTrade, a division of LBMZ Securities and licensed broker-dealer. ZacksTrade and Zacks.com are separate companies. The web link between the two companies is not a solicitation or offer to invest in a particular security or type of security. ZacksTrade does not endorse or adopt any particular investment strategy, any analyst opinion/rating/report or any approach to evaluating indiv idual securities.

If you wish to go to ZacksTrade, click OK. If you do not, click Cancel.

Reynolds' 1Q Earnings Beat, Sales Miss

Leading cigarette maker Reynolds American Inc. (RAI - Free Report) delivered adjusted earnings of 72 cents per share in the first quarter of fiscal year 2013 that were ahead of Zacks Consensus Estimate of 69 cents by 4.3%. Earnings were up 14.3% from the prior-year quarter.

Earnings were on the upswing on the back of positive pricing and expense management business.

Revenues and Operating Margin

Reynolds’ net sales in the reported quarter slipped 2.6% year over year to $1.8 billion due to declining cigarette volumes. Quarterly net sales also missed the Zacks Consensus Estimate of $1.9 billion.

Governmental actions that prohibit the use of tobacco products, along with diminishing social acceptance of smoking, are adversely impacting Reynolds’ cigarette volumes.

Adjusted operating income increased 8.5% to $690 million while adjusted operating margin inflated 3.7 percentage points to 36.0% due to strict cost controls.

Segment Details

RJR Tobacco: This is Reynolds’ largest operating segment, comprising operations of R. J. Reynolds Tobacco Company, a subsidiary of Reynolds American and the second-largest U.S. tobacco firm. It includes popular cigarette brands like Camel, Winston, Kool, Doral, Salem and Pall Mall. Segment revenue declined 6.2% to $1.5 billion in the first quarter.

Volumes declined 8.7% in the segment higher than a 6.2% decline for the industry due to losses on shipments and increased promotional activity by competitors. RJR Tobacco’s market share declined 0.6% year over year to 26.1% in the first quarter.

The premium Camel brand held a market share of 8.5% in the fourth quarter, 0.1 percentage point higher year-over-year due to high demand of premium menthol cigarettes. Value brand Pall Mall held a market share of 9.0%, up 0.5 percentage point.

Compared with the year-ago quarter, the segment’s adjusted operating income climbed 9.2% to $563 million, on the back of positive pricing and increased productivity which made up for the volume declined. Adjusted operating margin inflated 4.4 percentage points to 36.0%.

American Snuff: This segment comprises operations of American Snuff Company, a wholly-owned subsidiary of Reynolds American and the nation’s second-largest manufacturer of smokeless tobacco products. It sells some of the largest selling moist snuff brands like Grizzly and Kodiak. Segment revenue increased 5.7% to $167 million in the first quarter.

Volumes increased 1.1% in the segment from the prior-year quarter. The moist snuff market share increased 0.8 percentage point year-over-year to 33.0% in the quarter. Grizzly brand volumes grew 2.1% while market share expanded 1.1 percentage points to 29.8%, benefiting from the company’s investment in brand building programs.

Adjusted operating income increased 10.3% to $93 million, driven by volume and market share gains for the popular Grizzly brand. Adjusted operating margin increased 2.5 percentage points year over year to 55.7% backed by moist snuff volume gain.

Santa Fe: This segment comprises operations of Santa Fe Natural Tobacco Company, a wholly-owned subsidiary of Reynolds American and manufactures Natural American Spirit cigarettes and other additive-free tobacco products. Segment revenue increased 15.0% to $115 million in the first quarter.

In the quarter, Reynolds American spent $300 million to purchase 6.5 million shares under the company’s $2.5 billion share repurchase program.

Guidance Retained

Following the first quarter results, Reynolds American reaffirmed its fiscal 2013 adjusted earnings guidance in the range of $3.15 to $3.30 per share. The Zacks Consensus Estimate stands at $3.20 per share.

Resources

Client Support

Follow Us

Zacks Research is Reported On:

Yahoo

MSN

Marketwatch

Nasdaq

Forbes

Investors.com

Morningstar

Zacks Investment Research is an A+ Rated BBB Accredited Business.

Copyright 2016 Zacks Investment Research

At the center of everything we do is a strong commitment to independent research and sharing its profitable discoveries with investors. This dedication to giving investors a trading advantage led to the creation of our proven Zacks Rank stock-rating system. Since 1988 it has nearly tripled the S&P 500 with an average gain of +26% per year. These returns cover a period from 1988-2015 and were examined and attested by Baker Tilly Virchow Krause, LLP, an independent accounting firm.

Visit performance for information about the performance numbers displayed above.